To elucidate the dynamic strain aging (DSA) mechanism that causes serrated flow in the tensile curves of an intercritical annealed steel with retained austenite (RA) and intercritical ferrite, the multi-aspect microstructural characterization and micromechanical deformation behavior were systematically investigated in this study. Our results demonstrate that the DSA phenomenon is dependent on the strain rate, deformation temperature, and strain. This is accompanied by deformation-induced martensitic transformation (DIMT) and the generation of crystallographic defects in nucleating and propagating Portevin-Le Chatelier bands. An increase in the deformation temperature and strain rate leads to an increase in the stacking fault energy of RA. This inhibits the growth of martensitic embryos and retards the kinetics of martensitic transformation of RA, consequently decreasing or suppressing the DSA phenomenon. Furthermore, neither the long-range diffusion model of carbon atoms nor the short-range diffusion model on the reorientation of C-Mn complexes could reasonably explain the DSA phenomenon in this study. Based on the in situ synchrotron X-ray diffraction results and established mathematical models stemming from the dislocation multiplication theory, the DSA could be attributed to the periodic instantaneous dislocation multiplication in constituent phases caused by burst DIMT.